Govt divested shares of profitable PSEs

ISLAMABAD - Despite making tall claims to privatize loss-making Public Sector Entities (PSEs), the PML-N government had only divested the shares of profitable PSEs including Habib Bank Limited (HBL), United Bank Limited (UBL), Allied Bank Limited (ABL) and two others.

The PML-N government had initiated the privatization of 26 PSEs including Pakistan International Airline (PIA), Pakistan Steel Mills and power distribution companies (Discos) after coming into power in June 2013.

However, only five transactions including that of HBL, UBL, ABL, Pakistan Petroleum Limited and National Power Construction Company had been completed. The government had generated $1.7 billion through privatisation since coming into power in June 2013.

The combined accumulated losses by these PSEs now exceed Rs1.2 trillion (4 percent of GDP), which could eventually lead to sizable demand for budgetary resources, according to the estimates of International Monetary Fund (IMF).

“Privatization and restructuring of key loss-making PSEs have been largely on hold. Meanwhile, financial losses by the state-owned airline and steel mill have continued to accrue,” the IMF noted.

“The government had stopped the privatization of public sector entities after facing strong resistance from the opposition parties and union workers two and half year before,” said an official of the Privatization Commission.

He further said that privatization process of PIA, PSM and two other entities have been recently resumed.

“I am not sure whether we will complete privatization of PIA and PSM before general elections but effort will be made to complete two privatization transactions - Mari Petroleum Company Limited and SME Bank - in the current fiscal year,” he added.

The government had started the Privatization of Pakistan International Airline (PIA), Pakistan Steel Mills and power distribution companies (Discos).

Pakistan had given several commitments with IMF to privatize PSEs but could not honour it. Under a condition of the IMF, Faisalabad Electric Supply Company (Fesco) was required to be privatised by June, 2016. Lahore and Islamabad power distribution companies along with northern and Jamshoro power generation companies were scheduled to be privatised by September 2016.

Similarly, the government had also missed the deadline of privatization of PIA and PSM. The government had halted the multibillion-dollar privatization of all power distribution and generation companies (Discos and Gencos) due to the pressure of political parties and workers unions.

Failing to privatize Discos and Gencos, the accumulation of new payment arrears of power distribution companies (so-called “circular debt”)—which was brought to near zero at end-FY 2015/16—has resumed, reaching Rs 93 billion (0.5 percent of GDP) since July 2016, with an accumulated stock of such arrears of Rs514 billion (1.5 percent of GDP) by end-December 2017.

In a recent development, the government had once again resumed the privatization of PIA and PSM.

The government is working on a plan to lease plant and machinery of financially troubled Pakistan Steel Mills (PSM) in a push to revive its operations, which has remained suspended for the past around three years. PSM’s accumulated losses swelled to Rs177.78 billion in 2017. Its liabilities and losses have gone up consistently despite receiving bailouts worth Rs56.45 billion.

The government is bound to separate the core and non-core business of the PIA by 15th April as per the PIAC Conversion Act 2016 adopted unanimously by the parliament before its privatization.

As per plan, the government will retain fifty one percent shares of the national flag carrier while the management control will also remain with it.

The government has recently submitted its Fiscal Policy Statement for 2017-18 into the National Assembly, which stated, “Privatization Commission is in the process of finalising the appointment of financial advisers for the divestment of up to 18 percent of shares in MPCL to domestic and international investors through the Pakistan Stock Exchange”.

In the financial sector, National Bank of Pakistan, First Women Bank, SME Bank, National Investment Trust Limited, National Insurance Company Limited, Pakistan Reinsurance Company Limited, State Life Insurance Corporation and House Building Finance Corporation have been selected for privatisation.

The Civil Aviation Authority, Karachi Port Trust, Port Qasim Authority and the National Highway Authority are also on the list.